Global Macroeconomic & Renewables Outlook Key Views & - - PowerPoint PPT Presentation

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Global Macroeconomic & Renewables Outlook Key Views & - - PowerPoint PPT Presentation

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Global Macroeconomic & Renewables Outlook Key Views & Forecast Takeaways 25 November 2019 Disclaimer THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings Credit Rating. Any comments or

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25 November 2019

Global Macroeconomic & Renewables Outlook

Key Views & Forecast Takeaways

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THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment

  • n Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from

Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.

Disclaimer

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Global & Europe Macroeconomic Outlook

Daniele Fraietta – Global Economist

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The Global Economy

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Source: Fitch Solutions

Global Growth Momentum Continues To Weaken

  • The global economic outlook has

deteriorated since mid-May and headwinds to growth remain strong.

  • This has led us to revise our 2019

global growth forecast over the past months to 2.6%, from 3.0% in May.

  • Macro risks to growth are multiple and

risks to growth remain on the downside.

  • However, our baseline scenario does

not assume recession in 2019 and 2020, as we see a number of upside factors act as a buffer, limiting the downside momentum of the global economy. Downward Revisions To Our 2019 Growth Forecasts

Real GDP Growth, % 1 2 3 4 5 6 7 China World US UK Eurozone Germany May October

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The Eurozone

2

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Trade And Manufacturing Cloud Eurozone’s Outlook

  • Limited fiscal and monetary policy room to boost growth.
  • Risks to outlook tilted to the downside as there are multiple

macro risks to growth, including ongoing weakness in manufacturing and weakening sentiment.

  • Eurozone growth is slowing. We have lowered our real GDP

growth forecasts to 1.2% in 2019 and in 2020.

  • Brexit-related uncertainty and protracted US-China trade

tensions will remain key growth-dampening factors.

Source: Eurostat, Fitch Solutions

Economic Momentum Moderating

Real GDP Forecasts, %

Sentiment Surveys Show No Signs Of Rebounding

Eurozone – IFO, ZEW, Manufacturing and Services PMIs

Source: ZEW, Sentix, Markit, Fitch Solutions

  • 0.3

0.2 0.7 1.2 1.7 2.2 Italy Germany Belgium Eurozone France Netherlands Austria Greece Portugal Spain 2019 2020

  • 50
  • 40
  • 30
  • 20
  • 10

10 20 30 40 44 46 48 50 52 54 56 58 60 62 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 ZEW (RHS) Sentix (RHS) Manufacturing PMI (LHS)

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Source: Eurostat, Fitch Solutions

Labour Market To Remain Supportive Of Growth

  • The global economic outlook has

deteriorated since mid-May and headwinds to growth remain strong.

  • This has led us to revise our 2019

global growth forecast over the past months to 2.6%, from 3.0% in May.

  • Macro risks to growth are multiple and

risks to growth remain on the downside.

  • However, our baseline scenario does

not assume recession in 2019 and 2020, as we see a number of upside factors act as a buffer, limiting the downside momentum of the global economy. Unemployment At Or Close To Pre-Crisis Levels

Unemployment Rate, % 7 7.5 8 8.5 9 9.5 10 5 10 15 20 25 30 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Germany Italy Greece Eurozone (RHS)

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Source: Bloomberg, Eurostat, Fitch Solutions

Monetary Policy More Accommodative For Longer

  • The European Central Bank has

embraced a more accommodative monetary policy stance, delivering on its recent dovish rhetoric.

  • The key factors behind additional

monetary stimulus were subdued inflation and inflation expectations against a backdrop of weakening growth momentum.

  • Main policy rate at 0.00% in 2019 and

2020.

  • Further monetary stimulus to be

delivered over the next quarters through additional cuts to the deposit rate and/or larger monthly bond purchases. More Monetary Stimulus Ahead

Rates, % 1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.6 2.8 3

  • 0.5

0.5 1 1.5 2 2.5 3 3.5 4 4.5 Q204 Q404 Q205 Q405 Q206 Q406 Q207 Q407 Q208 Q408 Q209 Q409 Q210 Q410 Q211 Q411 Q212 Q412 Q213 Q413 Q214 Q414 Q215 Q415 Q216 Q416 Q217 Q417 Q218 Q418 Q219 Policy Rate HICP 5Y5Y (RHS)

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Brexit

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Brexit: Three Scenarios For December 2019–H1 2020

Brexit With Current Deal (60% probability)

  • PM Boris Johnson wins election, passes current deal, and UK leaves EU

with transition period to end Dec 2020 (extendable by 1 or 2 years) Article 50 Extension Beyond H1 2020 (25% probability)

  • Labour-Lib Dem-Scottish National Party coalition or a Labour majority

emerges and arranges a softer Brexit deal with the EU and a second referendum, with a delay beyond H1 2020

  • Second referendum could approve softer Brexit deal or result in decision

to remain in EU No-Deal Brexit (15% probability)

  • Johnson fails to pass his Brexit deal through UK parliament
  • Dec 2019 election ends in deadlock, EU does not grant suitable Article 50

extension beyond January 2020

Brexit Headwinds Increase Recession Risk

UK – Real GDP Growth Scenarios In Case Of Hard Brexit (%)

Source: Fitch Solutions. f=Fitch Solutions forecast.

  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2016 2017 2018 2019f 2020f 2021f Best (Hard Brexit) Medium (Hard Brexit) Worst (Hard Brexit)

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Irish Growth Set To Remain In A League Of Its Own

  • GNI*, which factors out MNC activities suggest that the

economy is actually some 40% smaller than GDP suggests.

  • Underlying domestic demand is in fact slowing, while a

disorderly Brexit remains the biggest threat for the economy.

  • At of 4.5% over 2019-2020 Irish real GDP growth will

continue to outperform eurozone averages.

  • That said, the country’s national accounts remain artificially

inflated by the activities of MNCs headquartered in Ireland.

Source: CSO, Eurostat, Fitch Solutions

Irish Outperformance Over EU Peers Set To Persist…

Real GDP, % chg y-o-y

…But Economy Not As Big As It Might Appear GDP & GNI*, EURbn

  • 5.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Q119 Q219 Q319 Eurozone Ireland 50 100 150 200 250 300 350 2010 2011 2012 2013 2014 2015 2016 2017 2018 GDP GNI*

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Global Renewable Energy Outlook

Daniel Brenden – Senior Power & Renewables Analyst

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1

Global Renewables Forecast

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Renewables Growth Drivers

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Europe Regional Overview

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Global Renewables Forecast

1

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Non-Hydro Renewables To Drive Power Sector Growth

e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions

Net Power Generation Additions Between 2018e and 2028f, TWh

[PERCENTAGE] [PERCENTAGE] [PERCENTAGE] [PERCENTAGE] [PERCENTAGE] [PERCENTAGE] Coal 32% Natural Gas 25% Oil 2% Nuclear 9% Hydropower 16% Non-Hydro Renewables 16%

Global Power Generation Mix By Year

Inner Ring: 2018e Outer Ring: 2028f

  • 2,000
  • 1,000

1,000 2,000 3,000 4,000 5,000 6,000 Asia Western Eur North Am Middle East And North Africa Latin America Central And Eastern Europe Sub-Saharan Africa Coal Hydropower Nuclear Oil Natural Gas Non-Hydro Renewables

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Global Power Projects: Renewables Footprint Growing

Global Power Project Pipeline Region By Type And Region, GW

Source: Fitch Solutions Key Projects Database

Global Project Pipeline By Technology, Across All Stages Of Development, GW

200 400 600 800 1,000 1,200 1,400 1,600 Asia MENA LatAm North America SSA CEE Western Europe Coal Gas Hydropower Nuclear Oil Non-Hydro Renewables Coal, 724.1 Gas, 536.6 Hydropower, 592.8 Nuclear, 341.4 Oil, 26.4 Non-Hydro Renewables, 561.9

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Global Renewables Projects: Big-Ticket Wind Dominating KPD

Global Renewables Project Pipeline Region By Type, GW

Source: Fitch Solutions Key Projects Database

Steadily expanding renewables project pipeline to support

cross-sector growth

  • Wind power dominating key projects database
  • Solar power boosted by surge in distributed small-scale projects

Asian project pipeline the most diversified, overarching focus on offshore wind in Western Europe

  • Increasing focus on cost-competitive CSP and PV Solar in Middle

East/North Africa and Latin America

  • SSA and CEE project pipelines lags behind

Biomass, 7.3 Geothermal, 9.3 Solar - CSP, 20.4 Solar - PV, 143.6 Wind - Offshore, 84.5 Wind - Onshore, 124.5

20 40 60 80 100 120 140 Asia LatAm Western Europe North America MENA SSA CEE

Biomass Geothermal Solar - CSP Solar - PV Wind - Offshore Wind - Onshore

Global Project Pipeline, Including Projects In Planning And Under Construction, GW

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Global Renewables: China Driving Global Renewables Expansion

e/f = Fitch Solutions estimate/forecast. Source: EIA, Irena, Fitch Solutions.

20,000 40,000 60,000 80,000 100,000 120,000 10,000 20,000 30,000 40,000 50,000 60,000

United States India Germany Japan United Kingdom

60,000 120,000 180,000 240,000 300,000 360,000 60,000 120,000 180,000 240,000 300,000

China Solar Wind Solar Wind

Net Global Non-Hydro Renewables Capacity Growth Between 2018e and 2028f, MW

Size of bubble illustrates net renewables capacity growth

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Global Renewables: Solar To Dominate The Biggest Markets

e/f = Fitch Solutions estimate/forecast. Source: EIA, Irena, Fitch Solutions.

Net Global Capacity growth By Technology Between 2018e and 2028f, MW Global installed renewables capacity will reach 2,500GW by 2028, more than doubling from 2018

  • Solar sector to overtake wind power in size
  • Wind power still most important in the power mix

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f Solar Power Wind Power Biomass Geothermal 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Solar Wind

Ratio Of Wind-To-Solar Renewables Capacity Growth

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Renewables Growth Drivers

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Source: National Sources, Fitch Solutions, Company Information

Selection Of Low Wind And Solar Auction Bids, USD/MWh

10 20 30 40 50 60 70 80 90 100 Jul-15 Jan-16 Aug-16 Mar-17 Sep-17 Apr-18 Oct-18 May-19 Dec-19 PV Solar CSP Solar Onshore Wind Offshore Wind

Transitioning To Auctions: Competition To Unlock New Markets

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Source: National Sources, Fitch Solutions, Company Information

Selection Of Low Wind And Solar Auction Bids, USD/MWh

10 20 30 40 50 60 70 80 90 100 Jul-15 Jan-16 Aug-16 Mar-17 Sep-17 Apr-18 Oct-18 May-19 Dec-19 PV Solar CSP Solar Onshore Wind Offshore Wind Chile 71 Chile 29.1 Saudi Arabia 17.9 Portugal 16.2 China 40.2 US 23

Transitioning To Auctions: Competition To Unlock New Markets

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Transitioning To Auctions: Competition To Unlock New Markets

Source: National Sources, Fitch Solutions, Company Information

Selection Of Low Wind And Solar Auction Bids, USD/MWh

10 20 30 40 50 60 70 80 90 100 Jul-15 Jan-16 Aug-16 Mar-17 Sep-17 Apr-18 Oct-18 May-19 Dec-19 PV Solar CSP Solar Onshore Wind Offshore Wind Peru 37 Morocco 30 Mexico 19.2 Brazil 20.2 Brazil 20.8

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Transitioning To Auctions: Competition To Unlock New Markets

Source: National Sources, Fitch Solutions, Company Information

Selection Of Low Wind And Solar Auction Bids, USD/MWh

10 20 30 40 50 60 70 80 90 100 Jul-15 Jan-16 Aug-16 Mar-17 Sep-17 Apr-18 Oct-18 May-19 Dec-19 PV Solar CSP Solar Onshore Wind Offshore Wind Netherlands 80.4 Denmark 55.5 Taiwan 68.9 Netherlands UK 48.8 China 87.8 Germany

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Corporate Procurement To Unlock New Growth Avenues

RE100 Corporations By Headquarters Location Selection Of US Corporate Energy Procurement Deals H1 2019

Source: RE100, Company Information, Fitch Solutions

US 42% UK 23% Rest of Europe 25% Japan 4% France 6% Company Capacity (MW) Resource Location Ball 161 Wind Oklahoma Ball 227 Solar Texas Facebook 250 Solar North Carolina & Virginia ABInBev 222 Solar Texas General Mills 200 Wind Texas Target 79.4 Wind Illinois Starbucks 46 Solar North Carolina Starbucks 50 Solar Texas Starbucks 50 Wind Oklahoma Hormel Foods 74 Wind Nebraska

  • Corporate procurement enables price hedging for generators and

consumers

  • US corporations at the forefront of renewable energy procurement
  • Western European companies to increase footprint in line with

zero-subsidy renewables

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Europe Overview

3

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Europe: Western Europe To Drive Decarbonisation Efforts

Net Non-Hydro Renewables Capacity Growth Between End-2018e and 2028f

e/f = Fitch Solutions estimate/forecast. Source: EIA, Irena, National Sources, Fitch Solutions

10,000 20,000 30,000 40,000 50,000 60,000 Germany France United Kingdom Spain Italy Turkey Netherlands Sweden Ukraine Denmark Portugal Ireland Poland Austria Norway Belgium Greece Romania Switzerland Russia Finland Kazakhstan Serbia Hungary Croatia Uzbekistan Lithuania Slovenia Estonia Bulgaria Belarus Bosnia and Herzegovina Czech Republic North Macedonia Latvia Slovakia

Size of bubble illustrates net renewables capacity growth

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  • Baseload Resources Declining
  • Renewables dominating the investment

profile

  • Investment in electricity interconnections and

grids to become key as renewables sector expands further

Western Europe: Grids Key As Renewables Footprint Grows

Power Generation By Type, TWh (LHS) And Renewables Share Of Power Mix (RHS)

Power Capacity Additions Between 2018 And 2028f, MW

e/f = Fitch Solutions estimate/forecast. Source: EIA, Irena, National Sources, Fitch Solutions

5 10 15 20 25 30 35 40 500 1,000 1,500 2,000 2,500

Coal Nuclear Natural Gas Non-Hydro Renewables Share Of Total

  • 100,000
  • 50,000

50,000 100,000 150,000 200,000 250,000 300,000 350,000 Non-Hydro Renewables Hydropower Nuclear Conventional Thermal

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  • East-West divide in EU over decarbonisation

policy, funding from west key to east transition

  • Renewables to only be supplementary to existing

conventional power sectors

  • Near-term outlooks for Ukraine and Turkey

weakening

Central & Eastern Europe: EU Support Key To Unlocking Growth

e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions

Power Generation By Type, TWh (LHS) And Renewables Share Of Power Mix (RHS)

Net Renewables Growth By Year By Market, MW

500 1,000 1,500 2,000 2,500 3,000 2018 2019f 2020f 5 10 15 20 25 30 35 40 500 1,000 1,500 2,000 2,500

Coal Nuclear Natural Gas Non-Hydro Renewables Share Of Total

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25 November 2019

Thank you

Yizel Suarez yizel.suarez@solutions.com +44 07715361242